Category Archives: Bank of Lithuania

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Lithuanian Ministry of Finance Reveals Guidelines on ICO Tokens

The Lithuanian minister of finance considers the country to be in the “middle of explosion of ICOs and blockchain based projects”, as the ministry published a thoughtful guideline document that acknowledged “the brave new crypto economy world”.

In the document, the guidelines bring to light how cryptocurrencies should be regulated and taxed. It outlines that they are recognized as having the characteristics of securities, although for tax purposes, it doesn’t mean that they will necessarily be treated the same way.

The ministry of finance also splits cryptocurrency classifications into two parts regarding the recommended frameworks, which depends on whether a token “grants profits or governance rights”.

This applies to investors who acquire tokens through initial coin offerings (ICOs); though the existing legislature applies to “payment tool” tokens or access to particular products, the report recommends that several regulatory standards should be applied if a token grants profits or governance rights.

The ministry report breaks down ICO tokens into a variety of areas such as tokens that are issued, the ICO operator, if it participates in secondary market exchanges and whether the ICO is a crowdfunding activity.

Regarding taxation and asset class, the report reads:

“In terms of Corporate Income Tax and Personal Income Tax, according to the substance and economic sense of transactions, the virtual currency is recognized as current assets that can be used as a settlement instrument for goods and services or stored for sale.

For the purposes of VAT, the virtual currency is considered as the same currency as euros, dollars etc. For the purposes of other taxes, other type of instrument, e.g. certain types of tokens, may be recognized as a virtual currency as well.”

Earlier Discussions

In October 2017, the Lithuanian Central Bank issued an “approved position” on virtual currencies. Marius Jurgilas, Member of the Board of the Bank of Lithuania, described them as “an instrument involving high risk”. He went on to say that financial institutions that were operating legally and arewerealso under the supervision of the Bank of Lithuania “must strictly disassociate themselves” from them.

The October 2017 document raises awareness for financial services who engage in cryptocurrencies, the document had the intention to inform that these activities leave them open to the possibility of financial crimes, terrorism financing etc.

The report suggests that should financial market participants wish to do so, they would need to adhere to strict compliance requirements to prevent such matters.

However, in April 2018, the Central Bank of Lithuania began crucial discussions exploring the uses of cryptocurrency, engaging with commercial banks, government regulators and traders with the goals of creating a faster and affordable means to license the operation of ICOs.

The Baltic state of Lithuania is host to approximately 3 million inhabitants and, much like other small economies such as Malta and Gibraltar, it has successfully been an early adopter of cryptocurrency and blockchain projects. Should it manage to implement these guidelines, Lithuania will be a positive frontier for cryptocurrency and blockchain-related projects.

 

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A Step Back in History May Answer the Question, Is Fiat’s End in Sight?

Naeem Aslam, Contributor to Forbes has looked to history in an attempt to answer the question, will cryptocurrency ever replace fiat as the standard currency, reports Forbes.

At the recent Money 20/20 Conference held this month in Amsterdam, the panel discussions between major banks’ representatives were all of the opinions that wouldn’t be the case. During a panel discussion, representatives from Swiss National Bank, the Bank of Lithuania, the Bank of England, and the Bank of Canada took turns in expressing their views on the topic.

The responses were generally in agreement, with Bank of Canada’s James Chapman suggesting that this situation would only occur in a hyperinflation scenario, with Swiss National Bank’s Thomas Moser concurring that a poor fiat performance may well invite more cryptocurrency activity, but argued that “as long as central banks do a good job, there is no real for central banks to disappear”.

This discussion was the first of its kind where major financial institutions were able to address a specific question that is on many private and commercial investors’ minds. Aslam suggests that you only need to look into history to find the answer. He uses the UK pound established in 1694 and the US Dollar created in 1792 as cases in point, both currencies originally only available as precious metals, a troy pound of sterling silver constituting a pound,  and 24.75 grains of gold creating a US dollar.

Aslam observes that in the UK, the process of paper replacing gold was actually created by the private sector, with London goldsmiths furnishing receipts for payment, which of course later became the banknotes that are now traditional currency.

Across the Atlantic, The Massachusetts Bay Colony were the first to print paper money in the U.S. in 1690. As a type of IOU soldiers spent or traded them just like gold and silver coins. About 100 years later, the United States dollar became the country’s standard unit of money.

Due to reports of the decreasing trust in government, and specifically, banks after the last economic crisis, coupled with an increasing number of the population turning to alternative forms of electronic payment, such as cryptocurrencies like Bitcoin could be a portent for the future, especially when one looks at the evolution of cash.

Given the private sector was originally responsible for giving life to the current financial system, so it is possible that history is repeating itself with slow the encroachment on fiat by global cryptocurrency adoption, created by a private individual for global use.

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